* Stocks flat as Steinhoff extends losses (Adds latest prices, analyst quotes)
JOHANNESBURG, Jan 9 (Reuters) - South Africa’s rand strengthened on Tuesday, touching its highest level in two sessions, after rumours that President Jacob Zuma had stepped down spurred a temporary rally in the currency against the greenback.
Stocks were little changed with South African-listed Steinhoff shares weighing on the market.
At 1430 GMT, the rand was up 0.28 percent to 12.3500 against the dollar from a close of 12.3800 overnight in New York.
The currency reached 12.2775, gaining around 1 percent, earlier in the session before quickly retreating to above 12.30.
“The Zuma trigger today gives a glimpse of how the rand will react if Zuma does step down early, although this possibility is increasingly being priced in,” said Christopher Shiells, a senior emerging market analyst at Informa Global Markets.
On Sunday parliament said it would meet this week and review its rules relating to removing the country’s president, after the constitutional court said on Dec. 29 lawmakers had previously failed to hold Zuma to account, further fuelling rumours of an early exit for the 75-year-old leader .
The ANC’s top decision makers also meet this week, and Zuma’s recall is expected to be on the agenda.
The rand has gained around 8 percent as investors bet Deputy President Cyril Ramaphosa’s election as leader of the ruling African National Congress would push through business-friendly policies.
“We believe that the rand’s rally is looking overstretched given that South Africa’s idiosyncratic risks did not end with Ramaphosa’s victory. It is for this reason that we are maintaining a cautious stance on the rand and government bonds for 2018,” Shiells said.
Bonds tracked the firmer currency, with yield on the benchmark paper due in 2026 down 0.5 basis points at 8.55 percent.
On the bourse, the benchmark Top-40 index rose 0.1 percent to 53,184 points and the All-Share index gained 0.13 percent to 60,114 points.
Steinhoff fell 13.02 percent to 7.55 rand after the European Central Bank said on Monday it had sold its bonds of the scandal-hit company, potentially suffering a loss of up to 55 percent on that investment.
Further losses came from the bullion sector, which fell 2.46 percent as a firmer dollar weighed on gold prices. .
Gold Fields fell 3.08 percent to 52.00 rand and AngloGold Ashanti was 2.34 percent lower at 128.83 rand. (Reporting by Mfuneko Toyana and Tanisha Heiberg; Editing by Joe Brock)